Most people have a funny thing with money.

Dollar amounts tend to become fixated at a certain point in their minds. For example, they will remember buying a car when they were twenty and grumble that, for example, “cars cost so much more now, just ten years later.”

And while products sometimes go up in price, often the problem is a more subtle one: it’s that those dollars are worth less every year due to inflation.

As I write, in July, 2021, there’s quite a bit of discussion about this because inflation has ramped up after government giveaways in 2020. It’s running at an annualized basis of just over 5% this summer.

Which means, if things continue as they have, your dollar will be worth only 95¢ a year from now. Which introduces the somewhat sobering thought that if your investments are not getting at least a 5% return, you’re actually losing money on those investments.

So we need to remember that a dollar is not necessarily a dollar. A dollar (or any other currency) is a way of measuring the value of goods and services. And unlike a yardstick, it’s a measuring device that’s always changing itself. And since any unit of measure can be confusing if it’s not constant, here’s a way to help yourself mentally in dealing with the changes in value that happen from year to year.

Let’s go back to our earlier example. Let’s say you bought a car ten years ago, in 2011, for $10,000. Want to know how much that would cost in today’s dollars?

Go to https://www.usinflationcalculator.com/

(If you prefer, just do a search for “inflation adjusted dollars.” There are a number of sites available. This is just the one I normally use).

Enter the year. In this example, 2011, and then the amount spent then, again in this example $10,000.

Press “calculate.” For our example, we get $12,078.

In other words, to buy that car that you bought ten years ago for $10,000, you would have to pay $12,078 now. Your 2011 dollars have lost just over 20% of their value since then.